Final Terms of Future Fund Released

It has been announced that the Future Fund will be open for applications on Wednesday 20 May 2020. The UK government’s fund provides up to £5 million of match funding in government loans for fast growing start-ups, and while the whole fund is initially capped at £250 million, the chancellor, Rishi Sunak, has announced that the fund’s size may be increased if demand is sufficiently high.

Despite much lobbying, the Future Fund remains incompatible with the Enterprise Investment Scheme since it was felt that this would require new legislation adding additional delay to the fund’s launch.

Further details about the eligibility criteria for companies who wish to apply and the terms of the convertible loan have also been published, and can be found here. This includes a detailed FAQ section here.

The non-negotiable template Convertible Loan Agreement to be used can also be found here.

1. What is the application process?

The process is investor-led, with the lead investor making the application and providing the requisite information.

Investor(s) must create an account on the www.british-business-bank.co.uk website and confirm their eligibility. They will then, with approval from the investee company, submit their application. Details required include:

1. information on the individual completing the application, including an upload of the individual’s photo identification (passport, driving licence or identity card);
2. information on the investor making the match funding application, information on all other investors who will be making up the match funding (only required for investors applying as a group);
3. the full amount of proposed funding; and
4. information on the company receiving the loan and contact details of a statutory director or the company secretary.

2. Which investors are eligible?

Investors must fall within one of the following categories to be eligible to invest:

1. an “investment professional” within the meaning given to that term in article 19 of the  Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”);
2. a high net worth company, unincorporated associated or high value trust falling within article 49(2) of the FPO;
3. a “certified sophisticated investor” or a “self-certified sophisticated investor” within the meaning given in articles 50 and 50A respectively of the FPO;
4. a “certified high net worth individual” within the meaning of article 48 of the FPO;
5. an equivalent professional, high net worth, institutional or sophisticated investor in accordance with applicable law and regulation in such investor’s home jurisdiction;
6. an association of high net worth or sophisticated investors within the meaning of article 51 of the FPO; or
7. capable of being classified as a “professional client” within the meaning given in the glossary to the FCA’s handbook of rules and guidance.

3. What criteria must the investee company meet?

1. The company must have raised at least £250,000 in equity from third-party investors in previous funding rounds in the last five years (from 1 April 2015 to 19 April 2020, inclusive).
2. If the company is a member of a corporate group, it must be the ultimate parent company.
3. The company does not have any of its shares or other securities listed on a regulated market, a multilateral trading facility, a recognised investment exchange and/or any other similar market, stock exchange or listing venue.
4. The company must be a UK incorporated limited company.
5. The company must have been incorporated on or before 31 December 2019.
6. At least one of the following must be true for the company: 
   1. half or more employees are UK based; or
   2. half or more revenues are from UK sales.

4. What limits are there on the use of funds?

The proceeds of any successful Future Fund application must not be used to:

1. repay any borrowings from a shareholder or a shareholder related party (other than the repayment of any borrowings pursuant to any bank or venture debt facilities);
2. pay any dividends or other distributions;
3. for a period of twelve months from the date of the relevant convertible loan agreement, make any bonus or other discretionary payment to any employee, consultant or director of the company other than as contracted prior to the date hereof and as paid by the Company in the ordinary course of business; or
4. pay any advisory or placement fees or bonuses to any corporate finance entity or investment bank or similar service provider on monies advanced by the Future Fund.

It is expected that once companies and their investors complete an application through the British Business Bank platform, funds should flow to the company within 14 days.

The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation.  Information contained in this article is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.

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